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Obtala Quarterly Update - buy

By HotStockRockets | Wednesday 6 April 2016

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Obtala Resources (OBT) has announced a quarterly update, including that the “period has been very much focused on business development ahead of harvesting in April on both the timber and the agribusiness as both businesses move from project phase to operational… The sales pipeline is growing and the forthcoming months present themselves as an exciting period for the progress and expansion of our agriculture and timber divisions”.

This is with, in terms of its agribusiness, the company noting post significant investment in its farms and product range that, “marketing efforts over the last two quarters, following the securing of all required permits and certifications, is showing very positive results and gaining good market traction”. In particular, it noted initial orders have been received from buyers in the Middle East and Europe after the Berlin ‘Fruit Logistica’ trade show in February, with “strong expressions of interest for further orders”.

In timber, the recent new external investment is being utilised to accelerate production and distribution, whilst the company notes “initial orders for 2 containers of various timber species to China, which potentially will lead to a significant volume of exports on a monthly basis with a further order for 2 containers to Vietnam. There is also interest for 10 trial containers from Thailand. Two further timber distributors, based in South Africa, have both agreed to take a trial container of mixed species, which again will potentially lead to significant volumes of exports on a monthly basis”.

Finally, the retail outlets operation has seen restructuring, “with cost reduction and cost management controls taking effect”. Here it is noted that “trading conditions have been difficult in a generally depressed local business environment, impacted by a depreciated currency which is pegged to South African Rand and retrenchment from the local and regional, diamond and precious metal mining industry however we believe that our revised operating model may be able to grow and expand even in these conditions”.

We’ll see, but overall the company considers that “the platform for consistent growth in sales across the group has now been established and our focus and direction is with our partners to deliver attractive returns immediately”.

The shares have nudged ahead to 6.375p on the update – still down on the 8.25p at which they were recommended, but something of a recovery from the 5p hit in January. However, a sub £17 million market cap continues to look to fail to reflect the asset backing here and, expecting the above noted commercialisation progress to result in further positive news flow, our stance remains buy.

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